Ethics in International Business · Ethics in International Business INTRODUCTION Ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members

Ethics in

International Business

4

Ethics in International Business

INTRODUCTION

Ethics refers to accepted principles of right or wrong that govern

the conduct of a person, the members of a profession, or the

actions of an organization.

Business ethics are the accepted principles of right or wrong

governing the conduct of business people.

Ethical strategy is a strategy, or course of action, that does not

violate these accepted principles.


ETHICAL ISSUES IN INTERNATIONAL BUSINESS

The most common ethical issues in business involve employment

practices, human rights, environmental regulations, corruption,

and the moral obligation of multinational companies.


CRITICAL THINKING AND DISCUSSION QUESTIONS

Under what conditions is it ethically defensible to outsource

production to producers in the developing world who have much

lower labor costs when such actions also involve laying off long

term employees in the firm’s home country?


Employment Practices

• When work conditions in a host nation are clearly inferior to

those in a multinational’s home nation, companies must decide

which standards should be applied, those of the home nation,

those of the host nation, or something in between


Human Rights

• Basic human rights taken for granted in the developed world

such as freedom of association, freedom of speech, freedom of

assembly, freedom of movement, and so on, are by no means

universally accepted


Environmental Pollution

• When environmental regulations in host nations are far inferior

to those in the home nation, ethical issues arise

• The tragedy of the commons occurs when a resource held in

common by all, but owned by no one, is overused by individuals

resulting in its degradation


Corruption

• In the United States, the Foreign Corrupt Practices Act

outlawed the practice of paying bribes to foreign government

officials in order to gain business

• The Organization for Economic Cooperation and Development

(OECD) adopted a Convention on Combating Bribery of

Foreign Public Officials in International Business

Transactions in 1997 which obliges member states to make the

bribery of foreign public officials a criminal offense


• Some economists suggest that the practice of giving bribes

might be the price that must be paid to do a greater good

• These economists believe that in a country where preexisting

political structures distort or limit the workings of the market

mechanism, corruption in the form of black-marketeering,

smuggling, and side payments to government bureaucrats to

“speed up” approval for business investments may actually

enhance welfare

• Other economists have argued that corruption reduces the

returns on business investment and leads to low economic growth

Ethics in International Business Moral Obligations

• The concept of social responsibility refers to the idea that business people should take the social consequences of economic actions into account when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and good social consequences

• In its purest form, social responsibility can be supported for its own sake simply because it is the right way for a business to behave

• Advocates of this approach argue that businesses need to recognize their noblesse oblige (honorable and benevolent behavior that is the responsibility of successful companies) and give something back to the societies that have made their success possible


ETHICAL DILEMMAS

Ethical dilemmas are situations in which none of the available

alternatives seems ethically acceptable.



A visiting American executive finds that a foreign subsidiary in a

poor nation has hired a 12-year old girl to work on a factory floor,

in violation of the company’s prohibition on child labor. He tells

the local manager to replace the child and tell her to go back to

school. The local manager tells the American executive that the

child is an orphan with no other means of support, and she will

probably become a street child if she is denied work. What

should the American executive do?



A visiting American executive finds that a foreign subsidiary in a

poor nation has hired a 12-year old girl to work on a factory floor,

in violation of the company’s prohibition on child labor. He tells

the local manager to replace the child and tell her to go back to

school. The local manager tells the American executive that the

child is an orphan with no other means of support, and she will

probably become a street child if she is denied work. What

should the American executive do?

Ethics in international Business

The causes of unethical behavior


THE ROOTS OF UNETHICAL BEHAVIOR

Personal Ethics

• Business ethics reflect personal ethics (the generally accepted principles of right and wrong governing the conduct of individuals)

• Expatriates may face pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture, and they are psychologically and geographically distant from the parent company


Decision Making Processes

Studies show that business people may behave unethically

because they fail to ask the relevant question—is this decision or

action ethical?


Organization Culture

• In firms with an organization culture (the values and norms

that are shared among employees of an organization) that does

not emphasize business culture, unethical behavior may exist


Unrealistic Performance Expectations

• Pressure from the parent company to meet performance goals that are unrealistic, and can only be attained by cutting corners or acting in an unethical manner can cause unethical behavior

Leadership

• If leaders are not acting ethically, other employees may not act ethically


PHILOSOPHICAL APPROACHES TO ETHICS

Straw Men

Straw men approaches to business ethics are approaches that are

raised by business ethics scholars primarily for the purpose of

demonstrating that they offer inappropriate guidelines for ethical

decision making in a multinational enterprise.

Four such approaches are the Friedman doctrine, cultural

relativism, the righteous moralist, and the naïve immoralist.


The Friedman Doctrine

• Economist’s Milton Friedman’s position is that the only social

responsibility of business is to increase profits, so long as the

company stays within the rules of law

Cultural Relativism

• Cultural relativism is the belief that ethics are culturally

determined and that firms should adopt the ethics of the cultures

in which they operate, or in other words, “when in Rome, do as

the Romans do”


The Righteous Moralist

• The righteous moralist approach claims that a multinational’s home country standards of ethics are the appropriate ones for companies to follow in foreign countries

The Naïve Immoralist

• The naïve immoralist asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either


Utilitarian and Kantian Ethics

• Utilitarian approaches to ethics hold that the moral worth of

actions or practices is determined by their consequences

• An action is judged to be desirable if it leads to the best possible

balance of good consequences over bad consequences


• Problems with the approach is measuring the benefits, costs,

and risks of a course of action, and the fact that philosophy fails

to consider justice

• Kantian ethics are based on the philosophy of Immanuel Kant

who argued that people should be treated as ends and never

purely as means to the ends of others


Rights Theories

• Rights theories recognize that human beings have fundamental

rights and privileges that transcend national boundaries and

culture

• Moral theorists argue that fundamental human rights form the

basis for the moral compass that managers should navigate by

when making decisions that have an ethical component

• The idea that some fundamental rights transcend national

borders and cultures was the underlying motivation for the UN’s

Universal Declaration of Human Rights (specifies the basic

principles that should always be adhered to irrespective of the

culture in which one is doing business)

Article 1.

All human beings are born free and equal in dignity and rights. They are endowed

with reason and conscience and should act towards one another in a spirit of

brotherhood

Article 23.

(1) Everyone has the right to work, to free choice of employment, to just and

favourable conditions of work and to protection against unemployment.

(2) Everyone, without any discrimination, has the right to equal pay for equal

work.

(3) Everyone who works has the right to just and favourable remuneration

ensuring for himself and his family an existence worthy of human dignity, and

supplemented, if necessary, by other means of social protection.

(4) Everyone has the right to form and to join trade unions for the protection of

his interests

Article 29.

(1) Everyone has duties to the community in which alone the free and full

development of his personality is possible.

Universal Declaration of Human Rights


Justice Theories

• Justice theories focus on the attainment of a just distribution of

economic goods and services

• A just distribution is one that is considered fair and equitable


• One theory of justice was set forth by John Rawls who argued that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone’s advantage

• Impartiality is guaranteed by the veil of ignorance (everyone is imagined to be ignorant of all his or her particular characteristics) where people would agree that each person is permitted the maximum amount of basic liberty compatible with a similar liberty for others, and that once equal basic liberty is assured, inequality in basic goods social goods are to be allowed only if they benefit everyone

• Rawls formulates the difference principle, which is that inequalities are justified if they benefit the position of the least advantaged person


IMPLICATIONS FOR MANAGERS

Firms that ensure ethical issues are considered in business

decisions:

• favor hiring and promoting people with a well grounded sense

of personal ethics

• build an organizational culture that places a high value on

ethical behavior

• makes sure that leaders within the business not only articulate

the rhetoric of ethical behavior, but also act in manner that is

consistent with that rhetoric

• put decision making processes in place that require people to

consider the ethical dimension of business decisions

• develop moral courage


Hiring and Promotion

• Businesses should strive to identify and hire people with a

strong sense of personal ethics

• Prospective employees should find out as much as they can

about the ethical climate in an organization


Organization Culture and Leadership

Businesses need to build an organization culture that places a

high value on ethical behavior:

• the business must explicitly articulate values that place a strong

emphasis on ethical behavior, perhaps using a code of ethics (a

formal statement of the ethical priorities a business adheres to)

• leaders in the business should give life and meaning to the code

of ethics by repeatedly emphasizing their importance, and then

acting on them

• the business should put in place a system of incentives and

rewards that recognize people who engage in ethical behavior and

sanction those who do not


Decision Making Processes

A moral compass can help determine whether a decision is ethical. If a manager can answer “yes” to the following questions, the decision is ethically acceptable.

• does my decision fall within the accepted values of standards that typically apply in the organizational environment?

• am I willing to see the decision communicated to all stakeholders affected by it?

• would the people with whom I have significant personal relationships approve of the decision?


A five step process can also help managers think through ethical

problems:

•1. business people should identify which stakeholders a

decision would affect and in what ways

•2. managers need to determine whether a proposed decision

would violate the fundamental rights of any stakeholders

•3. managers need to establish moral intent (the business must

resolve to place moral concerns ahead of other concerns in cases

where either the fundamental rights of stakeholders or key moral

principles have been violated)

•4. the company should then engage in ethical behavior

•5. the business must audit its decisions, reviewing them to make

sure that they were consistent with ethical principles


Ethics Officers

• To ensure ethical behavior in a business, a number of firms now have ethics officers

Moral Courage

• It is important to recognize that employees in an international business may need significant moral courage that enables them to walk away from a decision that is profitable, but unethical.


Summary of Managerial Actions

•In the end, there are clearly things that an international business

should do, and there are things that an international business

should not do, but there are also actions that present managers

with true dilemmas

Documents

Ethics in International Business · Ethics in International Business INTRODUCTION Ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members